Ch 03 - Beneficial Entitlement

Question 1

What is a fixed interest trust?

Answer 1

A fixed interest trust is a trust where the settlor decides upfront who will receive what, possibly with conditions (e.g., reaching a certain age).

Question 2

What is the difference between vested and contingent interests in a trust?

Answer 2

• Vested: The beneficiary is entitled to trust property without any conditions.
• Contingent: The beneficiary’s entitlement depends on the occurrence of a future event (e.g., reaching a specific age).

Question 3

What is the difference between present and postponed interests?

Answer 3

• Present: The beneficiary is the first to receive the trust property.
• Postponed: The beneficiary must wait because someone else holds a prior interest.

Question 4

What is the difference between limited and absolute rights in a trust?

Answer 4

• Limited: The beneficiary is entitled only to income from the trust.
• Absolute: The beneficiary is entitled to both the trust capital and income.

Question 5

What happens when a beneficiary has a vested interest in a trust?

Answer 5

The beneficiary owns the equitable title to the trust property, which they can gift, transfer, or bequeath. If the beneficiary dies before receiving the trust property, the equitable title will pass to their estate.

Question 6

What is an example of a contingent interest in a trust?

Answer 6

If a settlor gives a sum to trustees for a beneficiary to receive when they reach the age of 25, the beneficiary’s interest is contingent until they meet the condition.

Question 7

What happens if a beneficiary with a contingent interest dies before fulfilling the condition?

Answer 7

The rights of the beneficiary revert back to the settlor or the settlor’s estate, depending on the terms of the trust.

Question 8

In the example of a life interest and remainder trust, who is entitled to income and who is entitled to capital?

Answer 8

• Life tenant (e.g., Alice): Entitled to trust income during her lifetime (e.g., rental income).
• Remainder beneficiaries (e.g., grandchildren): Entitled to the trust property (capital) after the life tenant’s death.

Question 9

What is the rule in Sorrell v. 40 (S41) concerning bringing a trust to an end?

Answer 9

Beneficiaries who are all adults and have absolute entitlement can bring the trust to an end, even if the settlor did not intend for it to end early.

Question 10

When can beneficiaries bring a trust to an end using the rule in Sorrell v. 40?

Answer 10

Beneficiaries can bring the trust to an end when all beneficiaries are adults and absolutely entitled (i.e., no contingent interests), and they all agree to terminate the trust.

Question 11

In the example with three children, when can the trust be ended using the rule in Sorrell v. 40?

Answer 11

If one child (e.g., Brian) has reached the condition (e.g., age 25), the trust can be ended. If none of the children meet the condition (e.g., if all are under 25), the trust cannot be terminated.

Question 12

What is the role of classifying beneficial interests in a trust?

Answer 12

Classifying beneficial interests helps trustees manage the trust property (e.g., investing or distributing) and determines whether the rule in Sorrell v. 40 can be applied to end the trust early.

Question 13

What is the significance of the ‘life tenant’ and ‘remainder beneficiaries’ in a trust?

Answer 13

• Life tenant: Receives trust income (e.g., rental income) during their lifetime.
• Remainder beneficiaries: Receive the capital of the trust (e.g., the house) after the life tenant’s death.